The Social Security Trust Fund and the "Money Has Been Spent" Line

With the release of the latest Social Security trustees report the scare stories have been coming fast and furious. In this vein, Marketplace radio had an interview with Olivia Mitchell, the head of the Pension Research Council. In this interview, Mitchell commented on the bonds held by the Social Security trust fund:

"If you take a narrow view, what you understand is that there's a trust fund, which is supposed to be the piggy bank whereby if the funds run short, the Social Security Administration can go and claim these bonds. But if you take the broad view -- which I do take -- you have to understand that the money actually has been spent. And so what it means is we'll either have to raise taxes, or cut expenditures, or issue more debt to be able to pay the scheduled benefits."

Of course Professor Mitchell's "broad view" would apply to any bonds issued by the federal government. For example, if Peter Peterson were to decide to cash in $1 billion in U.S. government bonds on their due date, the government would have to "raise taxes, or cut expenditures, or issue more debt" to be able to pay off Mr. Peterson's bonds.

Ordinarily we would not say that this fact means that Peter Peterson does not actually have the $1 billion in wealth implied by his bonds. In fact, the government's financial situation would probably never enter a discussion of Peter Peterson's wealth. In the same vein, since Social Security has a separate account under the law, it is hard to see what relevance Professor Mitchell's broad view has to the system's finances.